Washington state slams T-Mobile for “deceptive ‘No-Contract’” ads

T-Mobile will alter its ads, pay the Evergreen State over $26,000.

Last month, T-Mobile finally made a highly anticipated announcement—that it would kill off the mobile phone contract, dubbing itself the “Un-Carrier.”

As we reported at the time, customers can bring their own device or pay an additional fee to buy a new phone—essentially shifting the carrier subsidy entirely to the consumer. For example, a new Samsung Galaxy S III requires a purchase price of $110 (but retails for $550) with an additional $16 fee for two years.

On a month-to-month contract, if a customer wanted to switch carriers before the two years, he or she would have to either buy out the remainder of the contract or return the phone—as stated in T-Mobile’s company policy. But the Washington state attorney general didn’t take too kindly to T-Mobile’s advertisements that tout the “no contract” aspect of the carrier.

According to a new court order signed Thursday by the State Attorney General’s office and T-Mobile, customers who entered contracts between March 26 and April 25 may now obtain a full refund for equipment and cancel plans without being required to pay the remaining balance on the hardware.

Notably, T-Mobile will also be required to state in all advertisements the true cost of handset purchase, including the requirement that the customer maintain a two-year agreement while paying off a financing plan. In addition, T-Mobile will pay over $26,000 to the State Attorney General's office in reimbursement of legal fees, according to the Seattle Times.

“As Attorney General, my job is to defend consumers, ensure truth in advertising, and make sure all businesses are playing by the rules,” Bob Ferguson, Washington’s attorney general said in a statement on Thursday. “My office identified that T-Mobile was failing to adequately disclose a critical component of their new plan to consumers, and we acted quickly to stop this practice and protect consumers across the country from harm.”

Promoted Comments

This is pathetic. This is exactly why T-Mobile is going to have trouble selling this idea to consumers, because of dumb shit like this. The state is trying to protect the person that goes in, "buys" a phone for 40 bucks, thinks, great, no contract!, and then expects to cancel the service a month later without any further payment. Even though T-Mobile's contract-free plans + monthly financing will work out cheaper than Verizon/AT&T for most, the average consumer will just see this $550 phone price they're forced to put on the ad and say no way.

Edit: And what's the business with "the customer maintain a two-year agreement while paying off a financing plan"? That's not true. You can pay the phone off at whatever pace you want. There is no agreement above and beyond that.

121 Reader Comments

"No contract .... except THE CONTRACT that service is required to keep a monthly payment instead of a surprise balloon payment."

If t-mobile wasn't being deceptive with their "no contract" ads then the phone payments would stay the same regardless of whether you kept your cell service with them.

It's sad to see so many people ignoring this deceptive practice and downvoting anyone who supports the WA attorney general for making t-mobile be more honest.

(FYI, my service is with t-mobile.)

I think you have a point. What Tmo should do is charge 5$ per month to service the loan. If the customer also has cell service with Tmo then there will be a credit of 5$ per month shown on the Cell Service Side of charges.

T-Mobile is the ghetto carrier and this is probably the best thing for their customer base. The kind of people who use T-Mobile often have credit problems and wouldn't be able to do a contract with AT&T or Verizon, and this way when they can't pay their bill they can just return the phone and walk away.

In any other industry this would not even be up for debate. For example, if you got a car loan and the terms were that you had to get it serviced at that dealer else the entire loan was immediately due - most people would recognize that as a service contract.

If the car loan was for 0% then sign me up. If they said, we can give you a 0% loan if you service your car with us otherwise you would be paying 10% on the loan. Perhaps TMO can charge interest. But that is TMO's business model. If you don't like it then stay with ATT

This isn't about you signing up or even charging 0% interest - this is about saying there is no contract.Do you deny that a car loan structured that way would be a service contract?

Was completely clear to me. I've met people from Washington - they aren't this dense. Something stinks.

Just because it's clear to you doesn't mean it's clear to everyone. There are a lot of stupid people out there with cell phones. In fact, there are a lot of otherwise intelligent people out there that think cellphones really only cost $200 outright, and a lot of people out there that don't read the fine print before they sign on the dotted line...

Yes- you can leave early on our no contract plan.No- you can't sign up to make monthly payments in 24 installments for a $600 phone, then feel free to just walk away two months later and think you owe us nothing.

Or am I completely missing something?

Yes you are completely missing the default expectation of canceling service for a couple of months but continuing to pay the loan installments in the meantime. That is the big deal about t-mobile's switch - they broke the loan out into a separate contract. You ought to be able to turn phone service on and off without affecting the status of the loan. But it isn't really separate - the terms of the loan still depend on you paying for phone service. If you put the phone on your visa card and then canceled your phone service, visa wouldn't expect you to pay the entire balance immediately but t-mobile does.

No, T-Mobile expects you to pay the balance OR RETURN THE PHONE.i.e. It's "rent to own", not "loan".

If T-Mobile is going all-in on the "new" concept in America... don't they expect to have to do a lot of explaining?

I thought the whole point of this was to finally separate the phone from the service.

Employee: The plan is $50 a month.Customer: OKEmployee: The phone is $600.... or you can pay $100 now and pay $20 each month until it's paid off. Your phone bill will be $70 a month until the phone is paid off.Customer: That makes sense.

It shouldn't be that confusing. People have to pay monthly for their car or home until it's paid off.

Do people consider car financing a contract? I guess it really is... but I would assume people should be smart enough to know that they have to pay monthly for the car until it's paid off.

But the point the AG objects to is the "by the way, if you cancel your service before you pay the balance due on your phone, it's no longer $20 each month, but the entire balance due immediately" which you conveniently left out of your discussion.

If T-Mobile is going all-in on the "new" concept in America... don't they expect to have to do a lot of explaining?

I thought the whole point of this was to finally separate the phone from the service.

Employee: The plan is $50 a month.Customer: OKEmployee: The phone is $600.... or you can pay $100 now and pay $20 each month until it's paid off. Your phone bill will be $70 a month until the phone is paid off.Customer: That makes sense.

It shouldn't be that confusing. People have to pay monthly for their car or home until it's paid off.

Do people consider car financing a contract? I guess it really is... but I would assume people should be smart enough to know that they have to pay monthly for the car until it's paid off.

Two things. First, every car loan and mortgage I've ever signed said explicitly near the very top of the very first page "This is a contract". There's no excuse for not understanding that.

Second, the reason the AG is objecting is exactly because of where you stopped your discussion above. There's no implication that you have to return the phone or pay the balance immediately if you cancel your service. Again, if you're smart enough to read the fine print before signing a contract, no big deal... If you aren't, then I guess it's expensive to be stupid.

I have no idea how you can defend t-mobile here. They say no-contract in their ads, yet there is a contract. A contract as I defined earlier is ANY agreement (usually financial) that is enforceable by law. You are making an agreement to t-mobile to pay off the phone in x amount of time, with no penalty for early re-payment. BUT what is not clear from the ads is that you have to have a concurrent wireless agreement with t-mobile during this time.

There would be no issues here if an individual could cancel their monthly wireless plan and still pay the installments on the phone, but they cant... hence they are STILL in a commitment until their phone is payed in full.

And using their website proves no better.. Even going through the checkout process there is nothing in there stating these things, their terms of service on their site do not even have information regarding their NEW no-contract services and is also dated Effective December 30, 2011.

I have no issues with t-mobiles services, but they should be upfront with what their terms and conditions actually are when you buy a non-contract phone...

According to a new court order signed Thursday by the State Attorney General’s office and T-Mobile, customers who entered contracts between March 26 and April 25 may now obtain a full refund for equipment and cancel plans without being required to pay the remaining balance on the hardware.

But that has nothing to do with the fact that you are entering into a contact - no matter how nice it is to you, it is still a contract - unless you pay the full price at once up front before you walk out the door. They advertised "no contract." They did not advertise "no contract in some cases but in most cases in real life there will be a contract until you pay off the phone because the vast majority of consumers have no idea what the actual cost of their 'free' smartphone is" which is the reality of the situation. And blaming the consumer for being led down the path that all four major carriers and most of the minor post-paid carriers led them down is silly. How is the average consumer supposed to know what the actual cost of an iPhone is? How would the average consumer - which the Ars readership does not represent - know? Especially when they can go to Best Buy and buy an off-contact $99 Android phone easy-peasy. Guess what that sets the price of a smartphone at in their minds?

Your points are on-target, but "financing" is not some esoteric concept born from the tech world. It's been around since the 1950s for appliances, cars, etc. Do car dealerships that advertise "NO MONEY DOWN!" or "$99 DOWN PAYMENT" have to use the word "contract" in their ads or the AG will come after them? Also keep in mind that this dealt solely with the the advertising; as financing has been around for more than half a century, the laws concerning consumer loans are highly developed and it all would have been spelled out in the paperwork that we expect people signing things to get stuff to be able to read and understand.

Someone fetch the attorney general his smelling salts, but the way such offers are presented in marketing is often designed psychologically mislead customers as to the true total cost. Really. That the customer must maintain T-Mobile service while paying down the loan is news to me, but it doesn't sound unreasonable or law-case-worthy. There are terms and conditions in the paperwork that make the offer not as generous as it sounded in the ad? Martha, I just don't know what to believe any more.

If this is the worst case the attorney general of Washington State could find, he's either grossly incompetent or maybe, just maybe, an official who wants to be re-elected or elected to a higher office later went after a high-profile target to have something to crow about. Spending resources helping the innumerable individual people and small businesspeople whose lives are devastated by individual scams and fraud just wouldn't package so well in a TV ad or billboard. Those people should have been more careful.

It's pretty simple, entering into an agreement where you have obligations to pay monthly fees and obligations to pay off a balance if you cancel service over a defined period is a contract. You can't advertise that as a no contract plan. Shocking.

You have:A) a phone that you are financing.

B) a service plan that you can exit at any time without any cancellation fee.

C) a stipulation in your financing agreement that you will have fully paid off your financed phone before you cancel or upon cancellation of your service plan.

We all understand cell phone contracts to be "Stay with our company for x period of time, or pay the cancellation fee",

So you're right, it is simple, but you're wrong, it's not a cell phone contract.

Shocking.

It's pretty clear here that T-Mobile was NOT disclosing all the facts. And they were apparently letting the legalese of their paperwork, and humanity's dislike of reading such language to their advantage. It's a well-established practice that businesses write hard to read agreements in hopes people will skip over it and obligate themselves to things they aren't aware of.

I'm with those who say the AG didn't go far enough and didn't force all carriers to disclose all costs involved in plain English. It's not like they don't know what people are going to be asking. They just hope that their being enamored of a shiny new phone and a "contract free" ad is going to get them in the door.

It's not like they don't have pimple-faced salespeople who aren more enamored of the spiffs paid for selling Androids and Windows phones over the competition. They are going to be motivated to not say things that might discourage buyers from getting the more spiffy packages.

Edit: And what's the business with "the customer maintain a two-year agreement while paying off a financing plan"? That's not true. You can pay the phone off at whatever pace you want. There is no agreement above and beyond that.

My understanding from the story is that T-Mobile has previously been sloppy about disclosing this additional requirement. Obviously you were unaware that it was the case.

How is the "contract" different than the ETF AT&T and Verizon use to pay for the phone? The difference is breaking the device payment off the monthly service price to save money on the service after paying off the device. T-Mobile advertised it as "NO-CONTRACT" but you are STILL in a contract on the phone.

Problem is most people care about price today and not 12/24 months from now. I still think its great they separate out the two items, they just need to do it more fully and show the low service price first then add the phone contract

They are currently, by far, the best deal for people who don't want or need a new phone every year or so.

I used my first smart phone for over 6 years, an unlocked HTC P4300, replaced it with an unlocked HTC myTouch 4G slide. I expect to use this one as long as I can keep the software updated and useful.

Why replace something that does its job just fine?

Actually I disagree with your first statement. They are the best deal for people who want to buy a new phone every year. You're not in a binding contract, so therefore you can buy a new phone, finance it for a couple months while you pay it off, rinse and repeat. Carriers that dangle the upgrade discount in your face, and then release a spectacular phone every 3 months, but it's hard to justify being bound to a 2 year contract on a phone you don't use anymore and buying a new one on top of that, not to mention you're still paying for that phone well after the 2 year phase is up.

Key information is missing from the author's write-up. Why does Washington State Attorney General say that T-Mobile is being deceptive? Ars readers shouldn't have to dig for such basic information. It's like an entire paragraph is missing that connects dots.

Key information is missing from the author's write-up. Why does Washington State Attorney General say that T-Mobile is being deceptive? Ars readers shouldn't have to dig for such basic information. It's like an entire paragraph is missing that connects dots.

If T-Mobile is going all-in on the "new" concept in America... don't they expect to have to do a lot of explaining?

I thought the whole point of this was to finally separate the phone from the service.

Employee: The plan is $50 a month.Customer: OKEmployee: The phone is $600.... or you can pay $100 now and pay $20 each month until it's paid off. Your phone bill will be $70 a month until the phone is paid off.Customer: That makes sense.

It shouldn't be that confusing. People have to pay monthly for their car or home until it's paid off.

Do people consider car financing a contract? I guess it really is... but I would assume people should be smart enough to know that they have to pay monthly for the car until it's paid off.

But the point the AG objects to is the "by the way, if you cancel your service before you pay the balance due on your phone, it's no longer $20 each month, but the entire balance due immediately" which you conveniently left out of your discussion.

And are we sure this isn't explained at the T-Mobile store?

The AG has a problem with "deceptive 'No-Contract' ads" which I understand... the ads might not tell the whole story.

But isn't this explained before you leave the store?

Are people really confused by this?

You'd think T-Mobile make this clear since this is a new way of doing things (in America)

I have no idea how you can defend t-mobile here. They say no-contract in their ads, yet there is a contract. A contract as I defined earlier is ANY agreement (usually financial) that is enforceable by law. You are making an agreement to t-mobile to pay off the phone in x amount of time, with no penalty for early re-payment. BUT what is not clear from the ads is that you have to have a concurrent wireless agreement with t-mobile during this time.

There would be no issues here if an individual could cancel their monthly wireless plan and still pay the installments on the phone, but they cant... hence they are STILL in a commitment until their phone is payed in full.

And using their website proves no better.. Even going through the checkout process there is nothing in there stating these things, their terms of service on their site do not even have information regarding their NEW no-contract services and is also dated Effective December 30, 2011.

I have no issues with t-mobiles services, but they should be upfront with what their terms and conditions actually are when you buy a non-contract phone...

You know, I signed up with T-Moble on a trial basis with my Atrix from AT&T and you know what? I didn't have to sign a contract. Can you imagine that?

Their wireless service is offered on a no contract basis; very plain and simple. Their phones, and the terms for paying for those phones, are a different story. We got a pair of Nexus 4 phones when we decided we liked their service and the details of buying those phones were spelled out for us by the sales guy. Never, not once, did he say we were under contract for cellular service and we were informed that if we decided to leave T-Mobile we still had to pay for our phones.

To put it simply; I'm under contract to pay off an interest free loan for my new phone not for my cell service.

Or we could look at it from the other perspective, and say that Washington State did no go far enough. AT&T, Verizon, and Sprint should be required to include the ETF in the advertised price of the phone. The all-in price should be in a larger font than the upfront price.

That would level the playing field for T-Mobile.

Yeah, that would never happen. This seems to be a case of punish the innovator that is offering something different to customer that they said they wanted. I'm a T-Mobile customer, have been for about 13 years. I have no problem what-so-ever with the new setup and I understood it just fine from the get-go. But then, I am slightly more technically inclined than the average person out there buying phones, it seems, since I understand that you don't get the new Samsung for just $200.

Yes let's kill this incredible new business plan (for the US at least) that will lead to cheaper prices for the consumer and attempt to break up a consumer hostile carrier monopoly. Good looking out for the consumer. Someone pinch me so I can wake up from this really bad dream.

Actually, I am perfectly capable of remaining in my contract with Verizon should I choose to continue to give them my money while they continually alter the deal further. I'm switching to TMobile because of the flexibility their lack of service contract gives me; when all is said and done I don't think I'll be saving any money on my monthly bill.

Just because it's clear to you doesn't mean it's clear to everyone. There are a lot of stupid people out there with cell phones. In fact, there are a lot of otherwise intelligent people out there that think cellphones really only cost $200 outright, and a lot of people out there that don't read the fine print before they sign on the dotted line...

That's the thing, though: there's a signficant difference between falsely stating terms, and not stating them in terms that "stupid people" can understand. People need to learn from their mistakes. To refine someone else's comment, it's not expensive to be stupid, it's expensive to remain stupid. If you can't learn from your mistakes...

Are you honestly suggesting that an individual should simply be able to walk away from their service and keep the device they just agreed to pay for over the next two years?

What part of, "this is not about skipping out on a loan and getting a phone for "free." do you fail to understand?

It is so difficult for me to understand how that's not completely obvious, though. Let's break this down:

Argument 1: the general populace does not understand how much these devices actually cost.Counter: If that's the case, why would anyone try to abuse TMO's offer by walking away after only making the down payment? Either A: they know they can sell the phone for more than they paid, or B: they know that the phone is a status symbol that is above their socioeconomic status.

Both of those scenarios indicate knowledge that the phone is worth more than the down payment or subsidized cost.

Argument 2: It's unfair to the consumer to be forced to pay the remaining value of the phone if they need to pause service for a month or two.Counter: It's incredibly naive to think that just because *I* wouldn't abuse this, that there are not lots and lots of people that would. Even if the majority of people are not scammers, that does not excuse adults from acknowledging that there are scammers out there.

Edit: And what's the business with "the customer maintain a two-year agreement while paying off a financing plan"? That's not true. You can pay the phone off at whatever pace you want. There is no agreement above and beyond that.

Actually, I've been burned by exactly that recently. I bought a phone on a no-subsidy installment plan a year and a half ago, paid it off in full, and just now when I asked about switching to a pay-as-you-go plan the CSR said I'd have a $200 ETF for terminating my contract early. When I asked what basis there was for the ETF since there was no subsidy, they just ran me around in circles and said that it was for the benefit of having been able to have had a financing plan in the first place. (And the only reason I signed up for the financing plan instead of buying the phone outright is because the T-Mobile sales rep pressured me into it.)

Just a FYI here and perhaps a bit off topic, but it used to be in California that you couldn't get these deals where the carrier subsidized the cost of the phone. Of course, the phones were very simple back then. It has been so many years that I have no idea what they cost.

In California, even though the price of the phone was later allowed to be subsidized, you paid the tax on whatever the retail cost of the phone was. So the state viewed it as an installment plan. But this is dicey. Once the two year contract is up, you still pay the same amount monthly. So it really isn't a loan in the conventional sense.

Prior to the new "no contract" deal at T-mobile, there was the old "no contract" deal. My recollection was whatever the contract price was, you paid about $10 less a month. It didn't make sense for me to take it since I still had a better deal with my grandfathered contract.

To be fair, T-mob could just tell their long term customers that their contract is null and void once the two years is up.

BTW, nobody has mentioned if T-mob is forcing smartphone users to get a plan with data or not. Some people buy their kids old iphones but no data plan. They just use them on wifi.

The reason why America has the contract model is because our wireless carriers refuse to share frequencies and towers. So the phones only work on the one carrier. Why would I buy a phone like that?

Actually the GSM phones these days work on both T-mobile and At$T to some degree. Most phones are quad-band UMTS (3 g). They were quad band GSM (up to EDGE prior to that). Looking at the Z10 GSM, the phone works on AT$T and T-mob based on reports on Crackberry.

This isn't to say they share all bands, but just some bands.

There is a new agreement between T-mobile and AT$T to share spectrum. This is post the failed AT$T buyout.

There have been times when my T-mobile phone was on the AT$T network. This is something I only noticed when travelling. Going back to the same area, it would turn out T-mob put up a site.

On that particular note, I think I can readily shed a bit of light: Chances are, none of the three carriers own that tower. Some towers are privately owned, with access to those towers leased to any carrier who ponies up. Likewise, sometimes rooftops of tall buildings are leased in the same fashion. In fact, the church my parents attend has a cellular transmitter from one of the carriers housed inside of the steeple. (I've forgotten which carrier.)

Given the choice, I expect the carriers would favor owning all of their own towers, but in some cases, that just isn't feasible.

I don't get all the hate about this. I don't think this has gone far enough. I think all carriers should be required to show you the total cost and duration of the contract. This means the cost of the phone and the cost of the contract over the specified period if it's part of a package deal (i.e. a subsidized phone with a 2 year contract). This would provide enough information for people to make informed decisions.

Too many commentators here appear to be assuming that the general public is as intelligent and well-informed as we are. Bad news: Ars' readership is generally smarter and much more well informed than the general public. I would not be surprised at all if many people are not aware that the "real" cost of a smartphone is much higher than what they appear to pay for one with a 2 year contract.

T-Mobile is the ghetto carrier and this is probably the best thing for their customer base. The kind of people who use T-Mobile often have credit problems and wouldn't be able to do a contract with AT&T or Verizon, and this way when they can't pay their bill they can just return the phone and walk away.

I see no reason to overpay for things.

We ditched AT&T and moved to a pre-paid service last year after initially converting to the shared family plan (disaster). Two Phones with all the data that we need (approx 3GB / month) for less than $90 / month seems considerably better than the $170+ that we previously paid. That $80+ / month saving can be used for other things.

It took a few months to pay-back the AT&T contract break, but now we are in the 'save money' zone.

So we are $1000 / year better off, which pays for plenty of iPhone upgrades as we want to, when the iPhone5S / 6/7/8/9 comes out, we will buy them, unlocked, obviously, and sell the old devices on eBay. This will cost us no more than a couple of hundred dollars / device. So we are still $600/year better off and we get to have the latest iDevices or Nexxus or whatever we want through this strategy.

Last time I checked, I was not ghetto, but I do hate to spend money unnecessarily......

They are currently, by far, the best deal for people who don't want or need a new phone every year or so.

Wrong. Pre-paid phones are, by far, the best deal, period. The only thing I can't do with my pre-paid phone is text five digit numbers, which prevents me from entering radio station contests. Boo-hoo.

My former phone was the cheapest plan I could find, $35/month. When I reviewed my statements and saw how many minutes I used, and did the math, I realized I was paying 25 cents/minute. My pre-paid phone is 10 cents/minute. No brainer for me, I switched and haven't looked back. The best part is that if I can't get a signal on the primary carrier it automatically switches to the secondary - I have better coverage than anyone I know.

Edit: And what's the business with "the customer maintain a two-year agreement while paying off a financing plan"? That's not true. You can pay the phone off at whatever pace you want. There is no agreement above and beyond that.

Actually, I've been burned by exactly that recently. I bought a phone on a no-subsidy installment plan a year and a half ago, paid it off in full, and just now when I asked about switching to a pay-as-you-go plan the CSR said I'd have a $200 ETF for terminating my contract early. When I asked what basis there was for the ETF since there was no subsidy, they just ran me around in circles and said that it was for the benefit of having been able to have had a financing plan in the first place. (And the only reason I signed up for the financing plan instead of buying the phone outright is because the T-Mobile sales rep pressured me into it.)

Anyway, I've now switched to Ting.

What? We are talking about the policy they just unveiled recently. I have no idea what terms you signed on with a year and a half ago, back then there was probably a contract with ETF even if you didn't get a subsidized phone, like with most carriers. I'm sorry that happened to you, but it doesn't seem relevant here. With T-Mobile's new plans, there really is no agreement of any sort once your phone is paid off.

A loan that changes from an installment payment plan to a single balloon payment when you stop paying for something else is not a typical loan. Maybe I have a lack of imagination, but I can't think of any other loan that works that way, can you?

Actually, it's not uncommon at all. Even your mortgage can be called by the bank under certain circumstances, some of which have nothing to do with you not paying on time.

Unfortunately you CANNOT pay off the phone at any pace you want. You either pay the monthly fee OR pay it off in full. You cannot pay 16$ one month, then 50 the next, then 16 then 40. It is the minimum payment or the full remaining amount of the "loan"

Unfortunately you CANNOT pay off the phone at any pace you want. You either pay the monthly fee OR pay it off in full. You cannot pay 16$ one month, then 50 the next, then 16 then 40. It is the minimum payment or the full remaining amount of the "loan"

Really? I highly doubt that. Perhaps you'd have to go into a T-Mobile store to pay something other than the regular monthly payment, but I don't think they're going to say no to your money...

Unfortunately you CANNOT pay off the phone at any pace you want. You either pay the monthly fee OR pay it off in full. You cannot pay 16$ one month, then 50 the next, then 16 then 40. It is the minimum payment or the full remaining amount of the "loan"

Oh, RLY? Do you even have a T-Mobile account?

***Logs into T-Mobile account******clicks on the Pay my bill button******clicks on the Pay Equipment Plans***

Notice the Enter amount to pay today section?

You can indeed pay any amount you want at any time you want as long as it is above the minimum amount due for that month and is made on or before the due date..